Mortgage overpayment options

hcb42

I would do the same as above - 35 years is an awfully long time..

mercmanricky

I'm only 24
It seems weird to my friends that i'm already preparing for my future, they waste every last penny on useless stuff that they have to replace frequently or booze!

Thrugelmir wrote: »

A 35 mortgage term is a long time. Personally I would use the overpayments to reduce the mortgage term to 25 years initially. Then reconsider my options.

pstones578

blizeH wrote: »

Some good advice above, I personally went for option A since I figured if my circumstances change, and I lose my job, get my hours cut or whatever in the future, it'd make the payments a bit more manageable. Personally I see more benefit in that, than merely shortening the term.

It also means you'd potentially have more cash now if you need it - new car? holiday? You'd be in a much better position to save for them, since you'd be saving money each month on your mortgage.

(it's not unthinkable that if you kept up the overpayments, you should shorten the term via option A either btw)

We always go with option A as it help de-risk yourself from the effects of a massive salary loss. If you get to the point to where you are able to massively overpay above and beyond what your allowed then just wait until your next deal expires and throw all that extra cash you have at the mortgage before re-mortgaging again.

beecher2

mercmanricky wrote: »

I'm only 24
It seems weird to my friends that i'm already preparing for my future, they waste every last penny on useless stuff that they have to replace frequently or booze!

A 35 year mortgage means you are paying a lot more interest than you should be, regardless of your age. Try to get the payment term down to closer to the norm of 25.

mercmanricky

Yep, i understand that, but it was the only way we could afford it when we got the mortgage a year ago, it still worked out much cheaper than renting! After one year of overpaying £500 monthly we should be down to a 25 year mortgage according to the calculators.

Thrugelmir

mercmanricky wrote: »

I'm only 24

and 35 years takes you well into your 50's. So much can happen in a working lifetime.

beecher2

mercmanricky wrote: »

Yep, i understand that, but it was the only way we could afford it when we got the mortgage a year ago, it still worked out much cheaper than renting! After one year of overpaying £500 monthly we should be down to a 25 year mortgage according to the calculators.

so you've answered your own question - decrease the term. The only thing to double check is that you dont' have to pay a fee to do so as I'm pretty sure my lender did this.

blizeH

Another factor to consider is how much tangible incentive you'll have. This may sound silly, but when I was overpaying each month and my term was coming down, due to C&G being utterly awful (no online service, poor phone support) I had no easy way to find out exactly how long my term was after each payment. Now I've changed to lowering the monthly payment each month it gives me more incentive, and more importantly an incentive that's actually easy to quantify and that I get instant benefits from.

I appreciate this won't apply to most mortgage lenders, and even if it does then most people won't care as much as I do, but for me it was very important to have something tangible to spur me onto paying off even more, as opposed to seemingly throwing money at something and not to get any benefit until 20 or so years in the future.

Thrugelmir

blizeH wrote: »

as opposed to seemingly throwing money at something and not to get any benefit until 20 or so years in the future.

The benefits are only longer term. As repayment mortgages are weighted to the end. After 20 years you'll still owe 40% of the original capital advance on a 25 year mortgage. So overpaying your mortgage is best done in a balanced way to accelerate repayment but not at the expense of a miserly lifestyle. Much as saving for retirement from an early working age. Small sums compound over the years to grow.

As Einstein said "Compound interest is the 8th wonder of the world. Those who understand it earn it, those that don't pay it".

Crashandburn

blueberrypie wrote: »

No, and if you'd read what I wrote, you'd understand what I was saying.

What affects how much interest you pay is how much you owe.

If you pay £500 off your mortgage - *regardless of whether you call it a regular payment or an overpayment* - your mortgage balance is reduced by £500 and you pay interest on £500 less.

If you make a total payment of £1000 per month, it doesn't matter whether it consists of a standard mortgage payment of £500 per month plus an overpayment of £500 per month or of a standard mortgage payment of £480 per month and an overpayment of £520 per month. The effect on the mortgage balance, on the interest and on the date when your mortgage is finally paid off is exactly the same.

But Option A and B would have different monthly payments. Option A would see a decreasing monthly payment and with the OP already at his maximum overpayments each month, then he will pay more interest on Option A than Option B.

Agree with the other T&Cs but its the 'doesn't actually make any difference to how much interest you pay in the end' I disagree with when clearly you are paying more into one than the other.